What does it mean for you?
As we approach the end of 2023 and enter 2024, let's review Canada's ongoing effort to improve and expand the Canada Pension Plan (CPP) through Bill C-26.
How does CPP work?
The CPP is a mandatory pension plan for most workers in Canada, excluding Quebec, who have the Quebec Pension Plan (QPP) and anyone earning less than $3,500 annually.1 CPP provides workers with monthly payments during retirement. The size of those payments depends on an individual's earnings during their working years. The federal government sets a yearly maximum pensionable earnings (YMPE) amount, the maximum salary amount for CPP contributions.
What's changing?
Before January 1, 2019, employees contributed 4.95% of their earnings to CPP.2 Since the CPP enhancement took effect in 2019, the rate at which we're required to contribute to CPP has grown by one percentage point to 5.95% in 2023.3 The maximum pensionable earnings under CPP will increase to $68,500 in 2024, compared to $66,600 in 2023, with a basic exemption amount of $3,500.4 A secondary tier of additional maximum pensionable earnings, CPP2, will be introduced in 2024, where individuals earning between $68,500 and $73,200 will be required to contribute to CPP a second time.5 This additional contribution rate is 4% or a maximum amount of $188 (($73,200-$68,500) x 4% = $188).6
How will these changes affect you?
Although many workers have and will continue to contribute more to CPP in the future, this new enhancement will only benefit those retirees who have worked and contributed to the program since 2019 (when the annual contribution rates began to rise). Those entering the workforce now will see the most significant increase in their benefits. At the same time, those close to retirement will only receive a modest increase.
Questions?
If you have questions or need more information about the CPP enhancement or your workplace savings plan, contact your dedicated advisor using our Make Sense service, offered exclusively to Cowan clients, at 1-866-345-8256 or makesense@cowangroup.ca.
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